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Saturday, 21 April 2012

CORRUPTION, ECONOMIC GROWTH and SOCIETY

Corruption, illegal and/or unethical conduct involving public and private sector transactions, has been a reality since the creation of institutions and the formation of government. Studying Medieval society in the Latin West, one can see that the entire feudal-manorial structure was predicated on a system of legalized corruption, or something akin to modern day mafia or powerful narcotics gangs. The very nature of institutional structure, both public and private, lends itself to corruption because those in positions of power and authority deem themselves above mechanisms of accountability that they would apply to all others.

Even movements, secular and religious, that start out with an agenda against corruption and abuse of power wind up victims of corruption once they become institutionalized. This is a point that German theologian Martin Luther made in the 16th century about the rampant corruption of the Catholic Church that had become so intertwined with the secular world, it was difficult to discern the lines of power separation. Naturally, whether in the case of the Catholic Church during the Protestant Reformation, or today with banks and multinational corporations, the ultimate goal of corruption is wealth and power. In short, public, private sector, religious, education, or any other type of corruption is catalytic to maintaining societal elitism and a necessary component toward that goal.

With the advent of mass politics - everything from Communism, parliamentary democracy to Fascism/Nazism - in the 20th century, institutional corruption became more pronounced, not because it was any worse than in the 16th century, but because there was the promise of public accountability behind government and institutions. Given the increasing dependence of business on the state, public and private sector corruption intertwined, especially in the past half century in the era of welfare capitalism. Naturally, the advanced capitalist countries stress that corruption in the public and private sectors is something mainly confined to semi-developed and underdeveloped nations.

A closer look at the sources of corruption, however, indicates that in many cases the advanced countries invariably are the sources for corruption in the rest of the world. This is certainly the case with weapons sales made mostly by the advanced countries to semi-developed and underdeveloped nations. Not just Germany with its submarines sales, but France with its aircraft sales and other advanced countries are notorious in corruption schemes that filter down to semi and less developed nations where politicians, business people, trade union bosses, journalists and public opinion makers are easily bribed so that the weapons exporter can make the sale, while adding on the cost of the bribes.

While some from the West may feel that corruption is the necessary grease for the slow wheels of bureaucracy, most would not publicly make such a claim for it would be 'undemocratic'. Nevertheless, when it comes to making a deal with a government, labor union, or company, there is no hesitation to grease the wheels so the job can be completed. In the non-Western World, especially in the Middle East, the issue of baksheesh is one of feudal tradition where a person shows their appreciation for a favor.

A person in Norway would not think of bribing everyone from the tax collection agency to the surgeon operating on a relative to the university professor and local politician, whereas such was and remains the reality in Greece as well as other periphery European countries and the Middle East. Clearly, tradition, history, education and cultural values play a role with regard to levels of corruption and the degree that it is tolerated by society. The cultural aspect of corruption is deeply ingrained in society and it would take decades to eliminate it, though one must keep in mind that the issue of corruption is not merely about teaching high moral standards, but having mechanisms of rewards and punishment in place to prevent it.

Regardless of culture, bribery is and remains a way of doing business under the capitalist system because it means making the sale in cases when it may or may not be necessarily useful for the country purchasing it. In a recent posting entitled "Defense Spending and Declining Economy", I mentioned that 40% of illegal activities on the planet are related to weapons production/sales. Equally noteworthy that corrupt practices account for approximately ten percent of the world's GDP and of that amount 40% is from defense-related corruption/illegal activities. This is especially significant given that governments have convinced the public that defense equals patriotism, and opposition is tantamount to treason.

Local corruption like the old 'machine politics' Chicago, and other US cities, mafia-style corruption that has characterized Southern Italy, endemic local corruption as evident in Chinese provinces, urban mobster corruption rampant in Russia, or any other type that may involve everything from protection payoffs to bribes to officials for transit of human trafficking to narcotics invariably retards the legitimate or official economy as it entails transfer of capital that could have been invested in the productive economy. However, as bad as such corruption may appear, it does not compare with the damage to the economy that legal practices have caused and led to the global recession of 2008-present. Such legal practices included everything from HDC and hedge funds to corrupt banking practices that acted to legally weaken the regulatory mechanisms and permit banks and brokerage firms to nearly destroy the mainstream economy.

The global recession of 2008-present, combined with the massive banking scandals in the US and EU, followed by the Arab Spring uprisings against corrupt dictators, convinced many scholars that corruption impedes sociopolitical and economic progress. In short, if there were no corruption either in the public or private sector, society would be relatively free of such dire problems. Naturally, there are exceptions to this scenario, given that some countries with relatively low level of public sector corruption suffer just as badly in this global recession as the corrupt ones. For example, Iceland and Ireland cannot be compared with Southern or Eastern Europe's public sector corruption. Nor can Belgium, France, and Holland, all showing sings of structural financial weaknesses in 2011 and 2012.

Moreover, if corruption on its own hindered development, how do we explain China's phenomenal economic growth in the last decade, a country that ranks 78 out of 179 countries, much higher in the corruption scale than let us say southern Europe, especially Greece, immersed in official and private sector corruption. There are politicians, journalists and academics that claim corruption is a deterrent to investment. If this were the case, then the BRIC nations - Brazil, Russia, India and China - should not have enjoyed the bulk of the world's foreign investment in the last decade.

In fact, scholarly studies regarding corruption - the nexus between public and private sector - whether in countries pursuing quasi-statist policies like China or neo-liberal models like Southern Europe, indicate that in the short-term corruption actually helps speed up economic growth, while longer term there is a price to be paid in terms of higher costs to the taxpayer and consumer. However, the corruption costs are far higher in countries operating under the neo-liberal model where the state is subordinate to the private sector, than in countries where the state is hegemonic as in the case of China.

Clientist politics usually practiced in many countries, including much of Africa and Middle East under undemocratic regimes tend to stand out as egregious cases of corruption. The reason is that the West has convinced the public through the media that 'bourgeois parliamentary democracy' entails public accountability, thus less or no corruption. A very interesting aspect of corruption is how governments use it to manipulate public opinion. For example, the US, UK, France and to a lesser degree the rest of EU used the issue of corruption against Libya in spring 2011 to forcibly remove Muamar Qaddhafi from power. Granted he was a corrupt dictator that used government to amass personal/family wealth. But was the goal of the US, UK, and France to end corruption Libya or to take over the markets in Libya and secure energy contracts?

Another key question is whether Libya under a corrupt dictator was detrimental to the welfare of the majority people, any more than Bahrain or Lebanon. Corruption is probably much higher in Bahrain and Lebanon than it was in Libya, but there is no noise made about either of them. Lebanon is a transit point - from Russia and Eurasia, Europe, Africa and Middle East - for all sorts of money laundering operations. It is a country with offshore companies doing business with shady businesses in Panama, Virgin Islands, and of course the world's legal money shelter, Switzerland. Lebanon does rank 13th among 17 Middle East countries in the corruption index and 134th in the world, but that hardly makes it Finland.

Although there are economists who argue that corruption can contribute to economic growth, in general it is viewed as a reflection of backwardness and lack of efficient and professional institutions, at least in theory. No politician or public official can possibly go before the public and offer a positive case for corruption and economic growth, no matter what they believe privately. That corruption is almost a given, one way or the other, is the unspoken truth. The question is to what degree is public welfare advanced and to what degree is it harmed by corruption in the private and public sectors and to what degree is it a political issue used by one government against the other?

Corruption is used as a political issue to weaken or remove regimes, as a pretext for the structural problems of capitalism that is headed toward unbridled a corporate welfare state, a pretext for the fact that finance capitalism has weakened the system and it is looking to apportion blame. This is not to suggest that corruption does not add to obstacles to development, nor that it does not add to production costs and parasitic capitalism, instead of productive enterprises intended to generate greater economic growth.

If the entire economic system is based on a corrupt - bribery, money laundering, illegal movement of capital, tax evasion, etc. - it is still possible to achieve growth, but not the kind of growth that would be achievable if such activities were at a minimum. However, capitalists and bourgeois politicians operate under a model of corruption in order to preserve the system that is falling apart. Worse than institutionalized private and public sector corruption are the policies that have legalized social injustice under the guise of 'democracy'. Finally, if we lived in a world free of corruption, but all else staying exactly the same, would there be any less poverty, gross socioeconomic inequality, political and environmental injustice?

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